GFANZ and guidelines: Key takeaways from Finance Day

Implementation COP aims to work out the practicalities of mobilising finance

This year’s conference of parties is all about implementation, so we haven’t seen the headline-grabbing announcements of last year. Most sessions yesterday were about bringing together the industry and policymakers to work out the practicalities of how climate finance – particularly financing developing markets – will be achieved.

Watch investment professionals discussing their implementation takeaways here.

Nevertheless, there are still a few developments worth knowing about:

Guidelines are getting firmer

The UN expert group set up by UN secretary-general, António Guterres released a report, Integrity Matters: Net Zero Commitments by Business, Financial Institutions, Cities and Regions, requiring firms to not invest in new fossil fuel supply or deforestation, a limited use of carbon credits, the inclusion of Scope 3 emissions and the exclusion of lobbying. Read more about the report here.

Data is opening up

GFANZ said by autumn next year it will have an open-source database to help assess transition plans and progress and increase transparency. Some 160 members have target updates that were due yesterday to GFANZ, Mark Carney said at an event of Alliance members at the conference (pictured).

The Climate Data Steering Committee, which was launched in June 2022 by French president Emmanuel Macron and UN special envoy for climate ambition and solutions Michael Bloomberg, also published a request for proposals on plans for a Net Zero Data Public Utility where finance firms will be able to access climate data.

Intending to be part of the UNFCCC global climate action portal it will include Scope 1, 2 and 3 emissions, net-zero targets and be accessible and usable. The consultation closed in October this year.

Carbon credits are getting a look in

With the global voluntary carbon market estimated to grow to $50bn by 2030, they have been the cause of several announcements on Finance Day, although the Principles of Responsible Investment (PRI) told ESG Clarity (look out for the full interview in an upcoming podcast) there is still work to be done for them to be credible and should not be a first port of call for investors.

IOSCO published a discussion paper intended to advance the conversation about “what sound and efficient voluntary carbon markets should look like and what role financial regulators may play in promoting integrity in those markets”. Chair Jean Paul Servais told a panel of regulators at COP27 it should act as a call to action for best practice in the industry (watch our full video interview with Servais on ESG Clarity EU tomorrow).

The Ocean Risk and Resilience Action Alliance (ORRAA), and Salesforce and Conservation International, also launched a blue carbon framework to meet “such high demand” in order to provide a consistent and accepted framework for blue carbon credits for credit purchasers, investors, suppliers, and project developers.

“Our hope is that governments, investors, buyers and sellers will adopt these high-quality principles and guidelines as the foundation for their engagement in this marketplace so that we see a race to the top for blue carbon investments that benefits communities, businesses and nature,” said Karen Sack, executive director of ORRAA. 

Finally, the US special envoy John Kerry launched the Energy Transition Accelerator, a carbon offset plan looking to transition out fossil fuels in developing countries.

“Our intention is to put the carbon market to work,” he said.

Although Kerry said the credits would be credible and robust, Chris Cote, Americas lead for ESG and climate research at MSCI questioned their effectiveness in avoiding emissions. “Disclosures of which projects corporations are purchasing offsets from are limited,” he added.

“Detailed, independent and reliable information on the quality of those offset projects – whether from building renewable energy or avoiding deforestation – is still emerging.”

Investment industry net-zero alliances have released their reports

The Net Zero Asset Managers’ Alliance published initial targets for 86 investors, bringing the total that have now set initial targets to 169 representing $21.8trn.

The Net Zero Asset Owners Alliance calls out 44 members without targets in its latest report and the Net Zero Banking Alliance published its first report, which has been criticised for failing to account for the bulk of oil and gas funding.

ISSB announces a partnership framework

The global standards group is partnering with 20 organisations, including CDP and the PRI, to release a framework designed to support investors and other capital market stakeholders as they prepare to use IFRS Sustainability Disclosure Standards. Read more about it here.

Emmanuel Faber, chair of the ISSB, said: “As we’ve heard from stakeholders here at COP27, the need for climate-related financial disclosures is increasingly urgent. We are working collaboratively towards the implementation of effective sustainability disclosures for capital markets, which will empower market participants with the right information to support better economic and investment decision making.”

African initiative to build climate resilience

Egypt’s COP27 Presidency and the United Nations Economic Commission launched an initiative to address African economies negatively affected by climate hazards and disaster recovery costs.

The Reducing the Cost of Green and Sustainable Borrowing initiative will issue Green and Social and Sustainable (GSS) Bonds to fill the financial gaps, and will allow “African states to borrow at an affordable rate, mobilise more green funding, and attract private capital,” according to the Egyptian COP27 Presidency.

Egypt publishes just finance guide

The Egyptian government launched the Sharm el-Sheikh Guidebook for Just Financing on 10 November in a bid to facilitate developing nations’ access to green finance. The manual looks particularly at equitable distribution of climate finance in African nations.

Following a definition of just financing, the paper sets out corresponding guiding principles and aims to reduce perceived risk of investments in developing countries through bridging the information gap. It maps climate capital providers’ access criteria, lays out innovative finance models to unlock private investments and highlights successful climate projects that could be replicated.

Finally, the guide provides actions each stakeholder can take and the roles they could play in achieving just financing outcomes.

Dr Akinwumi A. Adesina, president of the African Development Bank Group said the guide “clearly lays out the climate financing gap on the African continent and proposes an actionable agenda to close that gap.”

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Natasha Turner

Natasha is global deputy editor at ESG Clarity, part of the Bonhill Group, and has been a financial journalist for six years. She has been shortlisted for Story of the Year and Investment Journalist of...